Before Tom Lee
unexpectedly left his position as chief U.S. equity
strategist at JPMorgan, he predicted this rotation from growth
stocks into value and explained how it would work in the context
of economic growth. It was his second of "6 Investment
Themes For 2014," which he outlined in his Dec. 13, 2013, note
(unfortunately, we don't have permission to repost his figures):

#2: Value to further outperform Growth ...

Growth looks likely to see its 6 year winning streak end in 2013.
As shown on Figure 23, Growth is underperforming by 274bp this
year after a very impressive streak of outperformance
(2007-2012). The reason we expect Value to outperform in 2014
comes down to the following framework:

We anticipate GDP growth to broaden in 2014 and this
implies that growth will be less scarce in terms of companies
achieving better revenue profiles. Hence, investors will likely
be less willing to chase traditional growth stocks and “unit
growth” stories;

After reaching its widest spread in nearly a decade in July
2012 (see Figure 25), we believe the P/E differential between
“Growth” and “Value” is likely to narrow (Figure 25 measures it
by z-score). Consider that the average “growth” stock trades at
nearly 18x today while the average value stock is 13x.

That first bullet is key.

You see, since the financial crisis, revenue-growth prospects
have broadly been pretty anemic because of uncertainty and weak
economic growth. Investors seeking growth had been to turn to
secular growth (that is, businesses that grow regardless of
economic conditions) like the social-media stocks.

But with economic prospects improving, growth has broadened. In
other words, growth companies like the social-media stocks aren't
the only growth plays in town. This is what Lee meant when he
predicted that "growth will be less scarce."

The
NFIB regularly surveys small businesses, asking managers for
what they consider to be the single most important problem.
What's striking is the collapse of sales as a concern. This would
imply that sales prospects are improving for small businesses.